Accounting Policy for Inflation Linked BondsPFRDA-NPS

PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY 

CIRCULAR 

File No.: PFRDA/2013/19/PFM/5 Date: 11th Dec. 2013

To,

All Pension Funds

Subject: Accounting Policy for Inflation Linked Bonds

1. Inflation Indexed Bonds (IIB) 2013-14 issued by RBI has a fixed real coupon rate and a
nominal principal value that is adjusted against inflation. Coupons will be paid on adjusted
principal and on maturity, the adjusted principal or face value (whichever is higher) will be
paid. For providing inflation protection, Final Wholesale Price Inflation (WPI) will be used
with four months lag.

2. The Index Ratio (IR) is to be computed by dividing reference index for the settlement date by
reference index for issue date (i.e., IR setdate = Ref. Inflation Index setdate / Ref. Inflation Index
Issue Date). The formulae for calculating Ref WPI for a specific date is:

Ref WPI Date = Ref WPIM + (t - 1) x [Ref WPIM + 1 - Ref WPIM]
                                                   ---                              
                                                    D
Date = valuation date
D = the number of days in the month in which the Date falls
t = the calendar day corresponding to Date
Ref WPIM = Ref WPI for the first day of the calendar month in which Date falls
Values to be truncated to six decimals and rounded to five decimals.

3. Through interpolation, the daily Ref WPI should be computed for a particular month with the
above noted formula and also the daily Index Ratio has to be derived therefrom.

4. For the purpose of accounting IIB in NPS Schemes, the accruals of interest on IIB are to be
calculated daily on the inflation adjusted principal (Principal X Index Ratio setdate) with the
applicable real rate of return and may be valued in accordance with the valuation guidelines
issued by FIMMDA. Moreover, if any variances arise due to actual coupons receipts vis a vis
the accruals, it should be appropriated to the Schemes on the coupon due date.

 Mono Gogoi Phukon 

 (Dy. General Manager)

Source:pfrda

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Why NPS is the best retirement option

The Indian population is greying. According to the latest UNFPA report, the percentage of Indians above 60 years is projected to rise to 55% by 2050. The demographics also indicate an increasing longevity owing to betterment in medical facilities. While this is good news, it also means that tomorrow's retirees will have a longer retirement and must, therefore, accumulate a bigger corpus.

Retirement planning involves disciplined saving, vigilant investment to build a sufficient retirement corpus and its judicious drawdown in the postretirement phase. The National Pension System (NPS), launched by the Pension Fund Regulatory & Development Authority, takes all these concerns into account. It is a sophisticated innovation based on the world's best practices in the pension sector.

While saving for a long-term goal such as retirement, the cost matters a lot. Over 35-40 years, the charges can shave off a significant amount from the corpus. The NPS charges fund management fees of 0.0102% for the government employees and there's a ceiling of 0.25% for the private sector. This is perhaps the lowest in the world. Other charges are also low, making the cost-adjusted returns of the NPS quite attractive. It is estimated that the total cost of the NPS, including the fund management fee, will not exceed 0.5% per year, making it the cheapest financial product in India.

The NPS is a well-regulated, transparent and flexible scheme. It has laid down prudent investing norms for fund managers, and their performance and portfolios are regularly monitored by the NPS Trust under the overall supervision of the PFRDA. The scheme offers complete flexibility. The investor decides the percentage of the corpus that goes into equity, corporate bonds and government securities. There is only a 50% cap on exposure to equity.

One of the most outstanding features of the NPS is the 'lifecycle fund. It is meant for those who are not financially aware. It is also the default option for someone who has not indicated his desired allocation. Under this option, the investor's age decides the equity exposure. The 50% allocation to equity is reduced every year by 2% after the investor turns 35, till it comes down to 10%. This is in keeping with the strategy to opt for a higher-risk , higher-return portfolio mix earlier in life. As the investor approaches retirement , he shifts to a more stable, low-risk portfolio.

This automatic rejigging of the allocation is a unique feature of the NPS. No other pension plan or mutual fund offers such a facility to investors. There are a few funds based on age, but they are one-size-fits-all solutions, not customised to the individual's age.

Another unique feature of the NPS is the tax benefit it offers under the newly added Section 80 CCD(2). Under this section, if an employer contributes 10% of the salary (basic salary plus dearness allowance) to the NPS account of the employee, this amount gets tax exemption. This is over and above the 1 lakh tax deduction under Section 80C. It's a win-win situation for both because the employer also gets tax benefit under Section 36 I (IV) A for his contribution. By putting in money in the NPS, the employer can provide an additional tax benefit to the employee by simply restructuring the salary at no extra cost.
The NPS allows one to accumulate the corpus from the age of 18 for 40-odd years. There is minimal leakage in the form of withdrawals for competing consumption expenses. This allows the investor to reap the benefits of compounding till he turns 60.

The NPS also offers the flexibility to draw up to 60% of the retirement corpus as a lump sum to meet financial life goals like children's marriages, housing, or draw down the lump sum in a staggered manner till one is 70 years old. The rest can be used to buy an annuity from any of the seven Irdaregulated annuity service providers.

The author is the Chairman of the Pension Fund Regulatory and Development Authority.

Source: http://articles.timesofindia.indiatimes.com/2013-02-04/personal-finance/36742174_1_nps-trust-nps-account-national-pension-system

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New Pension Scheme: Corpus up to Rs 2 lakh can be fully withdrawn at retirement

New Pension Scheme (NPS) holders can withdraw the entire fund on retirement if the total amount is Rs 2 lakh or less. The Finance Ministry has notified the change.

“When, on superannuation, a request is received from a subscriber, other than the subscriber under NPS-Lite Swavalamban Scheme, having pension wealth of two lakh rupees or less, he/she may opt for withdrawal of total pension wealth,” according to a Finance Ministry gazette notification . At present, over 4,400 accounts have accumulated amounts of Rs 2 lakh or lower. Out of these, nearly 680 have made a request for withdrawal.

Normally, an individual can exit either at or after the age of 60. However, from March 2013, subscribers were allowed to stay invested till the age of 70, but with some conditions such as no-contribution or part-withdrawal between the ages of 60 and 70.

ANNUITY PROBLEM

At the time of exit, 60 per cent of the total amount is given as lump sum, while 40 per cent is used to purchase an annuity, which provides lifetime pension to an employee and his dependent parents/spouse at the time of retirement. The problem was that the accumulated amount was inadequate for pension payouts. The thinking is that accumulated funds of less than Rs 2 lakh are not enough to purchase an annuity or annuity providing for a decent monthly income.

Now, subscribers, with pension wealth of Rs 2 lakh or less, will have to make a request for an ‘opt-out’ option. Those who have not made a request for withdrawal as lump sum may like to continue, which is why a specific ‘opt out’ option is being proposed, rather than a default option.

NPS is a contributory scheme that was made mandatory for Union Government employees (except those joining the Armed Forces) joining on or after January 1, 2004. Under the scheme, an employee contributes 10 per cent of his/her salary and dearness allowance and an equal contribution is made by the Union Government.

shishir.s@thehindu.co.in
Source:http://www.thehindubusinessline.com/economy/new-pension-scheme-corpus-up-to-rs-2-lakh-can-be-fully-withdrawn-at-retirement/article5248473.ece

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Pension Bill passed in Loksabha

Lok Sabha Passes Pension Fund Regulatory and Development Authority Bill, 2011 with official amendments;
Subscribers Seeking Minimum Assured Returns Allowed to OPT for Investing their Funds in such Scheme Providing Minimum Assured Returns

The Pension Fund Regulatory and Development Authority Bill (PFRDA), 2011 was passed by the Lok Sabha today with official amendments. It was earlier introduced in Lok Sabha on the 24th March, 2011 to provide for a statutory regulatory body the Pension Fund Regulatory and Development Authority (PFRDA) under the provisions of the Bill. The legislation seeks to empower PFRDA to regulate the New Pension System (NPS).

The PFRDA Bill, 2011 was referred to the Standing Committee on Finance on the 29th March, 2011 for examination and report thereon. The Standing Committee on Finance gave its Report on 30th August, 2011. Some of the key amendments incorporated in the Bill based on the recommendations of the Standing Committee on Finance are as follows:

a) That the subscriber seeking minimum assured returns shall be allowed to opt for investing his funds in such scheme providing minimum assured returns as may be notified by the Authority;

b) Withdrawals will be permitted from the individual pension account subject to the conditions, such as, purpose, frequency and limits, as may be specified by the regulations;

c) The foreign investment in the pension sector at 26% or such percentage as may be approved for the Insurance Sector, whichever is higher;

d) At least one of the pension fund managers shall be from the public sector;

e) To establish a vibrant Pension Advisory Committee with representation from all major stakeholders to advise PFRDA on important matters of framing of regulations under the PFRDA Act.

Beside above, the Bill would make the Pension Fund Regulatory and Development Authority a statutory authority. Presently, it has non-statutory status. The NPS is based on the principle that ‘you save while you earn’ especially for retirement and is mainly for those who have a regular income.

This Bill would also provide subscribers a wide choice to invest their funds including for assured returns by opting for Government Bonds etc. as well as in other funds depending on their capacity to take risk.

The NPS has been made mandatory for all the central Government employees (except armed forces) entering service with effect from 1.1.2004. Twenty six (26) States have already notified NPS for their employees. NPS has been launched for all citizens of the country including un-orgnised sector workers, on voluntary basis, with effect from 1st May, 2009. Further, to encourage the people from the un-organised sector to voluntarily save for their retirement, the Government has launched the co-contributory pension scheme titled “Swavalamban Scheme” in the Budget of 2010-11. As on 14th August, 2013, the number of subscribers under NPS is 52.83 Lakh with a corpus of Rs.34, 965 crore. In order to effectively invest and manage huge funds belonging to a large number of subscribers and to ensure the integrity of NPS, creation of a statutory PFRDA with well defined powers, duties and responsibilities is considered absolutely necessary and would benefit all NPS subscribers.

The PFRDA Bill authorizes the PFRDA to establish a Pension Advisory Committee by notification under Clause 44 of the PFRDA Bill, 2011. The object of the Pension Advisory Committee shall be to advise the Authority on matters relating to the making of the regulations under the PFRDA Act.

Market based returns and wide coverage based on several investment options in the pension sector will build up the confidence in the subscribers, whereas withdrawals for limited purposes from Tier-I pension account will be an incentive for them to join NPS.

Source : http://pib.nic.in/newsite/erelease.aspx?relid=99122

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Streamlining Functioning of EPF Offices

Every Employees’ Provident Fund (EPF) office in the country is equipped with Facilitation Centre to redress all kinds of grievances of the employees. Further, there is centrally web based grievance registration facility available under Employees’ Provident Fund Internet Grievance Monitoring System (EPFIGMS) to facilitate grievances of individual employee through internet. Besides, LokAdalats are conducted by each EPF office every month to redress grievances of the employees. The facility for checking EPF accounts is available on Employees’ Provident Fund Organization (EPFO) website http://www.epfindia.gov.in in following ways:- (i) The updated balance in EPF account can be obtained by an EPFO member through SMS by furnishing his PF Account number and Mobile number by using “Know your EPF Balance” facility in EPFO website. (ii) Since April 2012, there is a facility for the employers to download the annual accounts slips for their employees from the accounting year 2010-2011 onwards. (iii) With effect from August 2012, there is a facility for members to get their e-pass book containing detailed statement of accounts on-line by using the “Member Portal” available on EPFO website. The EPFO website http://www.epfindia.gov.in is hosted in National Informatics Centre (NIC) server and is functional except only when NIC server is under routine maintenance. The Union Labour & Employment Minister Shri Mallikarjun Kharge gave this information in a written reply in Rajya Sabha today. Source:pib

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New pension system: Govt to strengthen PoPs

The Government is looking at ways to popularise the new pension system (NPS) by strengthening the distribution base to reach out to the informal sector, a finance ministry official said today.

Of the total 24 lakh subscribers of NPS, only around 45,000 are from the informal sector. NPS is a government-run retirement scheme for individuals, including those in the unorganised sector.

“We are aiming at increasing the subscriber base by way of strengthening Points-of-Presence (PoPs), which will enable us to reach out to people,” the official said.

PoPs are the first points of interaction with NPS subscribers. Authorised branches act as collection points and extend customer services. There are about 30 PoPs in the country at present.

The official said the ministry is looking at ways to reduce expenditure and reach out to people to increase participation.

“We need to increase awareness among people about NPS. We are trying to find ways to reduce distribution expenses and involve state agencies to reach out to the informal sector,'' the official said.

Of the total NPS subscribers, over 7.92 lakh are central government employees, 9,042 are from private companies and 41,826 are employees from central autonomous bodies. About 7.84 lakh subscribers are from state governments.

Earlier this year, a committee set up by the Pension Fund Regulatory and Development Authority (PFRDA) had suggested substantial lowering of the cost of buying NPS, besides providing incentives to distributors.

The report also recommended bringing down the minimum annual subscription of Rs 6,000 for the main NPS to Rs 1,000 per year to ease the entry barrier for investors. It would also help attract lower-end customers towards NPS.

NPS, launched for all citizens in May 2009, failed to take-off due to lack of sales ‘push’. So far it has attracted only 50,000 individual buyers, out of the over 400 million workforce in the country.

Courtesy:Hindu business line

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NATIONAL CONVENTION ON PFRDA BILL – 22-07-2011

More than 800 delegates representing AISGEF, Confederation of CGE & W, AIRF, AIDEF, STFI, AIFUCTO, BSNLEU, DREU and various Pensioners Associations participated at the National Convention on PFRDA Bill held at MPCU Shah Auditorium on 22nd July,2011. The proceedings of the convention were conducted by a presidium consisting of the following comrades:

Com. R.G.Karnik(AISGEF)

Com.S.K.Vyas(Confederation of CGE&W)

Com.P.R.Menon(AIRF)

Com.Sardara singh(AISGEF)

Com.N.Narayaana (STFI)

Com.V.A.N. Namboodiri (BSNLEU)

The declaration was presented by Com. Sukomal Sen, Vice President( AISGEF) and seconded by Com. S.K.Syas(Confederation of CGE&W), Com.Basudeb Acharya, M.P., Com. Tapan sen, Genl.Secy (CITU), Com. M.K.Pandhe, Vice President (CITU), Com. Bhatnagar (AlIEA), Com. Pradeep Biswas (BEFI) addressed the convention. Besides, leaders of all participating Federation, viz shiv Gopal Misra (AIRF), Com. Rajendran(STFI), Com. Ashok Kumar Burman(AIFUCTO), Com. R. Muthusundaram (AISGEF),Com. Abhimanyu (BSNLEU)Com.Sardara singh(AIDEF), Com.Elangovan(DREU), Com. M. Krishnan(NFPE), Com. Shyam Sundar(BCPC) spoke to detail the dangers posed to the existing pensioners and the serving employees when the contributory scheme is brought in operation. Com. K.K.N Kutty, Secy.Genl., Confederation of CGE&W summed up the discussion and sought and obtained the approval of the house for the following programmes of action.

1. To organise a mass signature campaign to be submitted to the Prime Minister. (The draft prepared and circulated was felt to be too lengthy to employ it for a signature Campaign. Therefore it was decided to have a small petition (copy given enclosed) which could be used for the campign.)

2. The standing committee can be approached for a hearing by the participating organizations. The original draft letter addressed to the PM may be used as a background paper to prepare the petition to the Chairman, Standing Committee.

3. To organise joint State level Conventions between 1-8-2011 and 6-9-2011.

4. To organise March to Raj Bhawan preferably on 6-9-2011 at all state capitals.

5. To organise March to Parliament.

6. To organise a day’s strike.

The dates for the program at (5) and (6) will be finalized by the Steering Committee consisting of representatives of all participating Federations. The Steering Committee is expected to meet in the last week of August, 2011. The convention approved the setting up of the steering committee.

On behalf of the Presidium, the concluding speech was delivered by Com. R.G.Karnik. He appealed to all the participating organizations to take strenuous efforts to ensure full participation of their members in the programmes to compel the Government to rescind their decision and withdraw the Bill from the parliament.

                       With greetings,

Yours faithfully,

KKN KUTTY
Secretary General

Courtesy:confederationhq

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NEW PENSION SCHEME.DETAILS OF FUND COLLECTION

SBI pension fund tops NPS collections for unorganised sector



With the revised DTC proposing that the final payouts be exempt from tax, the scheme for the unorganised sector is expected to gain popularity from next year.



SBI Pension Fund topped in collections under the new pension scheme for the unorganised sector. According to the latest available figures, collections have crossed Rs 30 crore.



The six designated fund managers for the NPS are ICICI Prudential, IDFC, Kotak Mahindra, Reliance Capital, SBI, and UTI. Of the six, SBI Pension Fund has received the highest amount of Rs 21 crore. Reliance has collected Rs 2.5 crore, UTI Rs 2.4 crore, ICICI Prudential Rs 2.2 crore, Kotak Mahindra Rs 1.3 crore and IDFC Rs 1.1 crore.



The NPS for the unorganised sector has not really taken off since its inception. The two major hindrances have been the disadvantage on the taxation front and the lack of intermediaries to sell the product.



Under the existing tax structure, the maturity proceeds under the NPS are taxed. That is, an EET (exempt-exempt-tax) method is followed. This puts the scheme at a disadvantage vis-a-vis other savings instruments where the exempt-exempt-exempt (EEE) method is followed.



Now with the revised DTC proposing that the final payouts be exempt from tax, the scheme is expected to gain popularity from next year.



It is learnt that the stakeholders have requested the new PFRDA Chairman to appoint intermediaries to sell the product to the masses.



NPS for Central Government employees



The total funds managed under this scheme amounts to Rs 4,590 crore. Of the three appointed fund managers, SBI manages Rs 2,141 crore, UTI has Rs 1,606 crore of funds and LIC PF the remaining Rs 843 crore.



The fund is allotted on the basis of performance. This time LIC Pension Fund got the highest allocation. However, according to other pension funds, as investment in the pension corpus is long-term in nature, their performance should be assessed on the basis of cumulative annualised NAV return rather than the year-on-year annualised return considered by the NPS trust. According to them, since subscribers to the pension funds are long-term investors, cumulative NAV return is a better instrument for assessing the performance.



NPS for State Government employees



Nine States are a part of the NPS, including Madhya Pradesh, Gujarat and Haryana, contributing Rs 489.31 crore to the scheme. Of the total funds, SBI manages around Rs 196 crore, UTI Rs 152 crore and LIC Rs 142 crore.

SOURCE;The hindu BL

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NO ROLE FOR FOREIGN PLAYERS IN PENSION SECTOR FOR NOW-PFRDA Chairman

PFRDA Chairman's priority is revamping NPS, expanding coverage.



The new Chairman of the Pension Fund Regulatory and Development Authority, Mr Yogesh Agarwal, has said there is no role for foreign players in the sector at this point in time.



Mr Agarwal also told Business Line that it is too early to allow pension funds to invest in the infrastructure sector.



He said there are no discussions on permitting 26 per cent foreign direct investment in the pension sector or plans to tweak the current New Pension Scheme (NPS) norms to increase exposure of pension funds to the capital market.



“The sector is yet to get going. These are not on the table now. We will take a call when the moment comes. Now the concern is to grow the sector,” Mr Agarwal said.



He said the priority is to revamp the NPS system so that more non-Government/private sector employees join voluntarily (it is compulsory for Government employees to join NPS).



In this regard, PFRDA is considering making the business of Pension Fund Managers (PFM) more viable by freeing the present fee structure and doing away with the cap on the number of PFMs. The seven PFMs had quoted very low fees to win the bid, but are suffering losses with the addition of every new subscriber due to the low fees, he said.



A committee led by former SEBI Chairman, Mr G.N. Bajpai, will study these issues and submit a report, Mr Agarwal said. The aim is to let people choose PFMs based on cost structure and track record.



Referring to the poor subscription to the NPS, he said there is no need to appoint another Central Recordkeeping Agency as there is little work to be given to a second CRA. The NPS now has only one CRA, which is National Securities Depository Ltd.



Mr Agarwal also said PFRDA is in talks with the Unique Identification Authority of India on various issues, adding that “tying up with UIDAI will help identify more stakeholders for NPS.”



On the low level of subscription (around 10 lakh people, including just 8,000 from the voluntary category), he said it was because of the wrong assumption that NPS will be bought and need not be sold.



To increase coverage of NPS, one must try to follow the model of mutual fund and insurance companies that have their own people in bank branches selling their products and helping out with subscription through bank branches, he said.



On the issue of the recent Ordinance reportedly giving powers to the Finance Minister to settle inter-regulatory issues, he said, “even today, when there is an inter-regulatory dispute, the Finance Minister steps in. The Ordinance only formalises this mechanism. I think it is a good step.”

Arun S



SOURCE;THE HINDU BL

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NEW PENSION SCHEME LIC PENSION FUND GETS 35% FROM NPS TRUST FUNDS

LIC Pension Fund Ltd has emerged the number one from among the three entities managing Central Government New Pension Scheme (NPS) trust funds following the allocation of 35 per cent of the funds in 2010-11.”The allocation is done on the performance of the past year and ours was the highest due to which we have received the maximum allocation from the NPS trust,” LIC Pension Fund’s Chief Executive Officer, H Sadhak, said here today.

He added that in the last three-years since the NPS came into effect, his company’s allocation share has risen seven times from a mere 5 per cent in the first year to 35 per cent for FY 11.



SBI Pension Fund with 33 per cent allocation and UTI Retirement Solutions with 32 per cent, come second and third respectively, a release issued by LIC Pension Fund said here.



LIC’s return on its assets under management is understood to be a little over 10 per cent. Sadhak, however, declined to comment on this.



The Central Government introduced the NPS in 2004 and appointed the three funds to manage the Central Government NPS funds.



The PFRDA (Pension Fund Regulatory and Development Authority) has put a cap under which 55 per cent can be invested in Central and State Government securities, 40 per cent in corporate securities and bonds, 15 per cent in equity and equity mutual funds and five per cent in money market instruments.



Sadhak, however, refused to share details regarding the total assets under management and officials from the Central Government NPS trust were not immediately available for comment on the same.



Sadhak, who attributed the performance to scientific investing by the company, said it would benefit from the new allocation as State Government trusts also generally use the same ratios as the Central Government for allocations.



Source : Financial Express

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NEW PENSION SCHEME (NPS)-----MAJOR BOOST WITH SBI

Friday, April 30, 2010





New Pension Scheme (NPS) is set to receive a major boost with the SBI...

NPS gets a chunk of SBI staff’s pension corpus

The Central government sponsored New Pension Scheme (NPS) is set to receive a major boost with the State Bank of India, moving a significant part of its employees’ pension corpus to the scheme. The NPS will also get significant contributions in coming months by way of employer and employee contribution towards the pension of public sector bank employees who join after April 1, 2010.

A senior official at the pension regulator PFRDA said NPS fund managers will henceforth manage a chunk of a fund that helps pay for retirement benefits of all present and former employees of the country’s largest lender.

“We received various queries from SBI regarding the nitty-gritties of our scheme,” said Rani Singh Nair, executive director at PFRDA. “We are happy to report that they have now joined us and we hope many others will also be encouraged to follow the example,” she told ET.



Industry officials say SBI is moving close to Rs 2,000 crore out of its about Rs 25,000-crore employees retirement corpus to NPS. The bank feels that NPS will help the fund fetch better returns than the current system it has in place.

As per published data, in-house fund management of most stateowned banks earned 8-9 % annualised returns in the fiscal year ended March 2009. NPS earned nearly 16%. It is this higher yield that SBI is trying to capture by participating in NPS.

In terms of the agreement between IBA and bank unions, all bank employees joining after April 1 will migrate to a defined contribution scheme. Since several public sector banks are planning to recruit clerks and probationary officers in the coming months, the number of NPS accounts are expected to grow sharply.

SBI’s chunk is a part of an overall corpus that pays for certain retirement benefits of employees, including the defined benefit pension.

Besides SBI, several state-owned corporations such as Nalco and Damodar Valley Corporation (DVC) have transferred a portion of their employees retirement benefit corpus to the NPS to take advantage of the benefits of economies of scale in managing retirement funds.



Unlike employees at state-owned banks, SBI employees are supposed to enjoy a “third benefit” as a part of their superannuation package. While others receive only provident fund (or pension) and gratuity post-retirement, SBI executives additionally get a third pension component.

This is done on a “defined benefit” basis, where the bank promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than as a function of investment returns.



Source: Economic Times

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